Just how much of the credit for the good economy can the Clinton administration rightly claim? The objective answer is, “Some, but not much.”
The first problem is a matter of chronology. Vice President Gore recently declared, “It is not recession time in America, like it was back in 1992.” But the National Bureau of Economic Research, the official keeper of the business cycle, dates the end of the last recession to March 1991, a full year and a half before Bill Clinton and Al Gore took the oath of office. Indeed, every time Clinton and Gore refer to the record length of the current expansion, they implicitly acknowledge its pre-Clintonian origin.
Contrary to Gore’s claim, this administration inherited an economy that was already growing at more than 3 percent a year, including a 5.4 percent annualized burst of real GDP in the fourth quarter of 1992. Unemployment, inflation and interest rates were all heading south before Clinton and Gore arrived on the scene.
The idea of a Clinton-Gore expansion is further discredited by the fact that the president’s economic agenda was largely frustrated from the beginning. His own Democratic Congress denied him the “stimulus package” and the sweeping nationalization of health care he sought during his first two years in office. He did manage to coax passage of a huge tax increase in 1993 (minus the broad energy tax he and Gore wanted), but this was not a unique feature of Clintonomics. His predecessor George H.W. Bush had also signed a tax increase of similar magnitude in 1990.
The election of a Republican Congress in November 1994 all but wiped out what was left of the Clinton economic agenda. By the beginning of 1995, tax increases and Hillarycare were out, spending restraint and deficit reduction were in (with Clinton resisting the former and reluctantly agreeing to the latter).
With the president’s economic agenda in check, the economic expansion only gained steam. Growth picked up to more than 4 percent, inflation stayed subdued, and unemployment continued to fall. Congress even managed to pass a modest cut in the capital gains tax in 1997, an item conspicuously absent from the president’s agenda. The expansion has endured not because the administration’s economic agenda was enacted but because so much of it wasn’t.
A stock market that had languished during the first two years of the administration moved sharply upward when it became clear that the new Republican Congress had brought an end to Clintonomics as we knew it. Since the beginning of 1995, the broad New York Stock Exchange Index has appreciated at an annual rate of 18.7 percent, compared to an anemic 2.2 percent rate during the two years when Democrats controlled both Congress and the White House.
This is not to say the Clinton administration deserves no credit for the expansion. Clinton reappointed Alan Greenspan as chairman of the Federal Reserve Board and has backed the Fed’s successful monetary policy. His Treasury Department has prudently managed exchange rate policy, mostly through benign neglect. And the administration has shepherded two major trade liberalization bills through Congress, the North American Free Trade Agreement with Mexico and the Uruguay Round Agreements that established the World Trade Organization, further opening the U.S. economy to the invigorating discipline of global competition. Admission of China to the WTO would be the capstone of a successful Clinton pro-trade policy.
But even these contributions essentially continued the policies of previous administrations. After all, the Uruguay Round, NAFTA and engagement with China all began in the Reagan-Bush years, as did Greenspan’s tenure at the Fed. Clinton’s achievements on the trade front owe more to support from Republican members of Congress than from those in his own party.
Real credit for the expansion does not belong to either the Clinton administration or a Democrat or Republican Congress, but to American workers, managers and investors. The current record expansion is not the result of government-lead industrial policy, managed trade or Keynesian pump-priming, but of stunning advancements in private sector productivity, innovation, reorganization, risk taking and hard work—all driven by the invisible hand of the marketplace.
Venture capitalists, Internet entrepreneurs, globally competitive corporate executives and 130 million working Americans deserve most of the credit for this expansion, not politicians.